Gold price rout could continue

The gold price could fall further after the commodity and miners of the precious metal were routed.Source: AAP

THE rout of the gold price is expected to continue after holders of the precious metal and gold mining stocks were punished on Monday.

The speed of the fall has surprised market watchers, with gold trading below $US1,450 ($A1,387.10) an ounce on Monday and 24 per cent below its record highs of 2011, putting it in bear territory.

The trigger for Monday's pain was a fall in value of $US63 an ounce, or 4.1 per cent, on Friday night to cap off a 6.1 per cent fall for the week.

The explanations and rumours for why the price of gold is falling ranged from positive views about the US economy sparking an end to monetary stimulus; to consortiums of bullion or central banks artificially pushing the price down and selling in large volumes to China.

CMC Markets chief market strategist Michael McCarthy predicts the price will fall by at least one third to $US1,000 an ounce and as low as $US880.

During a 12-year run of gains until this year, gold had been an investment for all seasons: when there was economic growth it was a hedge against inflation, when growth was going backwards it was a safe haven, Mr McCarthy told AAP.

What was different now was that it appeared the loose monetary policy of central banks around the globe and low interest rates and a weak US currency was coming to an end.

"Whenever you see that sort of dynamic in an investment, when it reverses it can get very, very ugly," he said.

"Companies with sustainable earnings paying nice dividends are attracting investors at the moment .. whereas something like gold produces no income, if it's a capital loss, its just a capital loss."

Head of research at ForexCT Steven Dooley criticised traders and investors who saw the gold price as a commodity that would only go up, expecting it to hit $US2,000.

Eagle Research Advisory managing director Keith Goode said he thought the gold price could bounce back up just as quickly as it fell.

"There are comments about why banks want the gold price to go down without waving a conspiracy," he told AAP.

"It's not impossible for the banks to act as a consortium to get the gold price down so China can buy at lower levels."

Shares in Australia's largest goldminer Newcrest Mining plunged by $1.61, or 8.24 per cent, to $17.92 and is at four-and-a-half year lows.

Smaller goldminers were harder hit, such as St Barbara, who dropped 13.5 per cent to 90 cents, and Regis Resources, who fell 12 per cent to $3.60.

Mr McCarthy said most goldminers would still be profitable until prices dropped to well below $US1,000 an ounce, but could not be complacent.

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